Page 28 - GSTL_30th April 2020_Vol 35_Part 5

J80 GST LAW TIMES [ Vol. 35

GST ON DIRECTOR’S REMUNERATION

By
Kevin Shah
CHARTERED ACCOUNTANT

Introduction :
Remuneration/dividend paid to directors/
shareholders has always been a subject of ambiguity un-
der any taxation law. Deemed dividend is a topic of am-
biguity under the Income Tax Act, 1961 and applicability
of GST as per reverse charge on remuneration paid to directors lacked clarity
under the erstwhile Service Tax Law and now under the GST as well. The Service
Tax on remuneration paid to directors was first introduced under the Service Tax
law under Negative List based Taxation in 2012. The recent advance ruling has
created a lot of confusion in the industry. In the present note, we have provided
our insights on the same for your reference.
Relevant provisions under GST :
(a) Services supplied by a director of a company or a body corporate to
the company or a body corporate located in a taxable territory shall
be subject to be tax [Section 9(3) of the CGST Act, 2017 read with
Notification No. 13/2017-C.T. (Rate), dated 28-6-2017] under GST
by applying principles of reverse charge mechanism.
(b) Services provided by the employees to the employer in the course of
or in relation to his employment shall not [Entry 1 of Schedule-III to
the CGST Act, 2017] be treated as a supply of services.
Advance Rulings under GST
(a) Alcon Consulting Engineers Private Limited (A.R. No. KAR ADRG
83/2019) [2019 (30) G.S.T.L. 678 (A.A.R. - GST)]
The Karnataka Advance Ruling Authorities have said that services
provided by directors of the company are not covered under
Schedule III of the CGST Act, 2017. Thus, the services provided by
the directors are subject to reverse charge mechanism under Notifi-
cation No. 13/2017-C.T. (Rate), dated 28-6-2017.
(b) Clay Crafts India Pvt. Ltd. (Advance Ruling No. RAJ/AAR/2019-
20/33, dated 20-2-2020) [2020 (35) G.S.T.L. 580 (A.A.R. - GST - Raj.)]
In the recent Advance Ruling issued by the Rajasthan AAR Authori-
ties, the Authorities have said that the Directors of the company are
not employees of the company. Hence, the benefit of Schedule III
given in Point 2(b) shall not be available to the Directors. The ser-
vices provided by the directors shall be considered as being covered
under Notification No. 13/2017-C.T. (Rate), dated 28-6-2017.
Rulings under Service Tax
A similar issue was also examined under Service Tax as RCM on fees
paid to directors was also prevalent under the Service Tax regime. The Hon’ble
Kolkata Tribunal [Brahm Alloy Limited v. CCE - 2019 (24) G.S.T.L. 616 (Tri. - Kol.)]
GST LAW TIMES  30th April 2020  28